Unprecedented Semiconductor Cold Wave... Worst Business Sentiment Experienced by Companies

Bank of Korea December Performance BSI Records 75
Lowest Level Since October 2020
Business Condition BSI Falls 3 Points to 71

Next Month Semiconductor Business Outlook PSI at 27
Samsung Electronics and SK Hynix Deficit Outlook Deepens

[Asia Economy reporters Kim Pyeonghwa and Mun Jewon] As economic uncertainty in Gyeonggi Province grows, the corporate sentiment index has fallen to its worst level in 2 years and 2 months. Due to the high interest rate trend and rising inflation, this trend is expected to continue until the first half of next year. South Korea's key industry, semiconductors, is forecasted to see profitability sharply decline due to an unprecedented downturn in the business environment.

According to the December Business Survey Index (BSI) released by the Bank of Korea on the 28th, the BSI for all industries this month recorded 75, down 1 point from the previous month. The sentiment has worsened for four consecutive months since August (81), dropping to the lowest level since October 2020 (74). This index reflects entrepreneurs' judgments and outlooks on current business conditions, and a value below 100 indicates a poor business environment.

By sector, a clear worsening trend was observed mainly in manufacturing. The manufacturing BSI was recorded at 71, down 3 points from the previous month. This is slightly higher than September 2020 (68), when the COVID-19 outbreak was severe. In contrast, the non-manufacturing BSI remained the same as last month.

The Bank of Korea cited the semiconductor industry's downturn as the main reason for the decline in manufacturing BSI this month. Due to factors such as the global economic slowdown, inflation, and interest rate hikes, the global semiconductor market has frozen, leading to increased inventory, price drops, and deteriorating profits in the domestic semiconductor industry. The market evaluates this semiconductor cold wave as quite significant compared to the past. The BSI for the category including semiconductors, ‘Electronics, Video, and Communication Equipment,’ was 71 this month, only about half of the same period last year (124).

Negative business outlooks are expected to continue into the new year. According to the Professional Survey Index (PSI) released by the Korea Institute for Industrial Economics & Trade this month, the semiconductor business outlook PSI for next month was 27, the lowest among manufacturing sectors. This index also uses 100 as the baseline to distinguish positive and negative outlooks. The Bank of Korea forecasts that the BSI for all industries in January next year will drop 4 points from this month to 70.

The deterioration of domestic semiconductor companies' performance is also gradually intensifying. According to financial information provider FnGuide, as of this day, Samsung Electronics' consensus operating profit for Q4 this year is about 49% lower at 7.2714 trillion won. SK Hynix is expected to turn to an operating loss of 643 billion won.

In the securities industry, it is also expected that Samsung Electronics' DS Division, which handles semiconductor business, may incur losses. Hi Investment & Securities forecasts an operating loss of 28 billion won for the DS Division in Q1 next year. Daishin Securities also expects an operating loss of 69.5 billion won. Researcher Wi Minbok of Daishin Securities stated, "Starting with NAND operating losses in Q4, operating losses are expected in the DS Division in Q1 next year and in DRAM in Q2."

This content was produced with the assistance of AI translation services.